Flying with(out) a safety net: Financial hedging in the airline industry

Rico Merkert and Hassan Swidan

Transportation Research Part E: Logistics and Transportation Review, 2019, vol. 127, issue C, 206-219

Abstract: This paper re-examines risk management theories in the airline context and investigates whether financial hedging (fuel, foreign exchange and interest rates) is an effective strategy for enhancing operational profitability. Based on data from 100 international airlines over six years, we evaluate the impact of hedging on financial airline performance. Our results suggest that fuel price hedging significantly decreases EBIT margin volatility (hence effective in mitigating financial risks) but has no significant effects on profitability (hence ineffective as a speculative tool) and operating costs. Low current ratios are shown to increase operating profits, highlighting the importance of liquidity in capital-intensive industries.

Keywords: Airlines; Risk management; Integrated financial hedging; Corporate strategy; Competitive advantage (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:transe:v:127:y:2019:i:c:p:206-219

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DOI: 10.1016/j.tre.2019.05.012

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